NFTs — What Are They and how They’re Impacting the Digital Landscape
More importantly, what exactly are they?
Consider this article a ‘beginners guide’ to NFTs and their impact on the digital landscape.
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What are NFTs?
NFT is an acronym for non-fungible tokens. NFTs are unique tokens that belong to each user on the blockchain network. This means every single token has a different value. Therefore, you can’t substitute it with another, like in the case of fungible assets.
For instance, with a fungible asset such as bitcoin, you can sell one and replace it with another identical one. However, with NFTs, each is unique with no like for like replacement.
Origins of NFTs
Although NFTs have only recently come into popularity, they’ve been around for a while. Some argue you can trace their origins back to 2013, from coloured coins. Coloured coins were used to issue tokens that represented a physical asset.
Bitcoin was used as the underlying asset for coloured coins, and each colour coin represented an equal portion of bitcoin.
While this worked, it wasn’t perfect because it wasn’t easy enough to implement or transfer from one place to another. So, there was room for improvement. That came in the form of ERC-721.
What Is ERC-721?
ERC stands for Ethereum Request for Comments. It’s a protocol used by developers to create different tokens on the Ethereum blockchain network, much like in the case of NFTs. The 721 part refers to a specific token type that has its value stored and recorded on the blockchain.
Ethereum co-founder and now ConsenSys founder Joseph Lubin explains ERC-721 like this:
“In our design, we focused on fungibility because one thing that’s important for decentralized application is having non-fungible tokens as an asset class.”
Are NFTs a Cryptocurrency?
One of the biggest misconceptions about NFTs is that they are a form of crypto. Whereas they share some attributes, they are entirely different digital assets. For the similarities section, both assets are stored via digital records on a blockchain. But that’s just about it.
With cryptocurrencies such as bitcoin and Ethereum, there’s more transparency and clarity about the value. One crypto has an equal value to another crypto of its kind. As such, you can easily exchange one for the other.
However, With NFTs there is no like for like approach as each is unique. As such, you shouldn’t confuse fungible assets with cryptocurrencies.
Moreover, NFTs and cryptocurrencies have different goals. While both aim to change the world in some way, cryptocurrencies focus on creating monetary units that one can use as an alternative form of money.
On the other hand, NFTs aim to serve as digital ownership of assets. Therefore, each token is unique and has its own attributes.
The Value Behind NFTs
There are countless examples of people selling NFTs for ridiculous sums. For those who are not in the tech space or are unfamiliar with blockchain technology, it’s just inconceivable.
In layman’s terms, an NFT is a digital representation of real-life assets. Such assets can range from artwork, in-game items, videos, music, and even a tweet. Trading of NFTs generally occurs online and through cryptocurrency.
Does Owning the Token Mean you Own the Asset?
This is where NFTs become as confusing as they are interesting. People who buy NFTs do not purchase the ownership or copyright of the asset associated with the token.
As the buyer, what you’ll own is the digital representation of the ownership of a token. As such, the owner of the asset can continue making more tokens and selling them.
So, why would one buy an NFT, especially at a premium, if they do not own the asset?
Well, for starters, the primary driving force for this is capitalizing on the rising popularity of NFTs. For asset owners, it is an opportunity to make money off their assets without actually relinquishing their ownership.
As the popularity rises, investors now see an opportunity to cash in on the rising value of NFTs. Just like cryptocurrencies such as Ethereum that have risen in value astronomically in the past few years, this is what some see with NFTs.
The best example of this is with the NBA. They are investing in projects that will see them sell match clips in NFT format. As it seems, just like playing cards that have been popular with fans for decades, so too will be these NFTs.
Whereas fans will not have the rights to the original clip, it’s likely that many people will invest in them. This is because owning such as digital asset comes with bragging rights, and it may just be good enough for the token to command a higher value in the future.
How to Buy NFTs
For art collectors and sports fans, among other groups, NFTs promise an exciting future. They allow you to own digital tokens of the assets you admire most. So, if you’re keen to get in on the action, there are a few things you’ll need to get started.
To begin with, you’ll need a digital wallet that allows you to store cryptocurrencies and NFTs. You will also need to purchase a cryptocurrency. There are several platforms, including Coinbase, eToro, and Kraken, where you can buy crypto using your credit card.
Of course, the cryptocurrency that you buy will depend on the currencies the NFT seller accepts.
Are NFTs Juts a Passing Fad or Something More Meaningful Than That?
It’s fair to say that the value of NFTs does not follow the conventional rules. However, this is not to say that they are less valuable. Actually, it is due to this uniqueness and tapping into people’s interests, leading to their fast-rising popularity. Some Gary Vee Doodles just sold at a Christies auction for $1.2million
As the love and value for digital products increases, there’s no better time than now to get in on the action.
John Radford — CEO Borne Digital
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NFTs — What Are They and how They’re Impacting the Digital Landscape was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.